Motorola 2006 Annual Report Download - page 79

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subsequent sale of the 37.6 million Sprint Nextel shares. The Company recognized a loss of $126 million in
connection with the sale of the remaining shares of Sprint Nextel common stock. As described above, the
Company recorded a net gain of $99 million in connection with the Sprint Nextel Derivative.
Prior to the merger of Sprint Corporation (""Sprint'') and Nextel Communications, Inc. (""Nextel''), the
Company had entered into variable share forward purchase agreements (the ""Variable Forwards'') to hedge its
Nextel common stock. The Company did not designate the Variable Forwards as a hedge of the Sprint Nextel
shares received as a result of the merger. Accordingly, the Company recorded $51 million of gains for the year
ended December 31, 2005 reflecting the change in value of the Variable Forwards. The Variable Forwards were
settled during the fourth quarter of 2005.
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents, Sigma Funds, short-term investments, accounts
receivable, long-term finance receivables, accounts payable, accrued liabilities, notes payable, long-term debt, foreign
currency contracts and other financing commitments.
Using available market information, the Company determined that the fair value of long-term debt at
December 31, 2006 was $4.3 billion, compared to a carrying value of $4.1 billion. Since considerable judgment is
required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the
amount which could be realized in a current market exchange.
The fair values of the other financial instruments were not materially different from their carrying or contract
values at December 31, 2006.
Equity Price Market Risk
At December 31, 2006, the Company's available-for-sale securities portfolio had an approximate fair market
value of $130 million which represented a cost basis of $70 million and a net unrealized gain of $60 million. The
value of the available-for-sale securities would change by $13 million as of year-end 2006 if the price of the stock
in each of the publicly-traded companies were to change by 10%. These equity securities are held for purposes
other than trading.
Interest Rate Risk
At December 31, 2006, the Company's short-term debt consisted primarily of $300 million of commercial
paper, priced at short-term interest rates. The Company has $4.1 billion of long-term debt, including the current
portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
In order to manage the mix of fixed and floating rates in its debt portfolio, the Company has entered into
interest rate swaps to change the characteristics of interest rate payments from fixed-rate payments to short-term
LIBOR-based variable rate payments. The following table displays these outstanding interest rate swaps at
December 31, 2006:
Notional Amount
Hedged Underlying Debt
Date Executed (in millions) Instrument
August 2004 $1,200 4.608% notes due 2007
September 2003 457 7.625% debentures due 2010
September 2003 600 8.0% notes due 2011
May 2003 114 6.5% notes due 2008
May 2003 84 5.8% debentures due 2008
May 2003 69 7.625% debentures due 2010
March 2002 118 7.6% notes due 2007
$2,642
The weighted average short-term LIBOR-based variable rate payments on each of the above interest rate swaps
was 7.29% for the three months ended December 31, 2006. The fair value of the above interest rate swaps at
December 31, 2006 and December 31, 2005, was $(47) million and $(50) million, respectively. The fair value of